Making firms healthier

Companies listed on the stock market are hostage to analysts, who monitor equities carefully and seek the best possible dividend. Now this does not apply to the majority of stocks, but only to the listed companies that analysts examine. These are mostly blue chips, or maybe mid-caps, which often receive advice aimed at the same goal: sticking to their main activity which they know well; not expanding into other sectors; trying to realize economies of scale and improving profits. This is currently the No. 1 song on the analysts’ chart. Although these recommendations are not irrational, had companies followed them more strictly, the market would have been very different. Many companies would not exist; many new products and services would not have gained a slice of the market – they might not even hit the market. These recommendations, however, are the opposite of those offered a few years ago. When stock markets were peaking, analysts called for aggressive moves, expansion into new markets and new «revolutionary» products, saying that these would boost profits, providing amazing returns to investors. After all, they had theoretically proven that the theory of a cycle in the economy is obsolete when we are in a period of constant increase of productivity due to new technologies. In practice, things do not move in such a spectacular fashion. They do not shift from disaster to spectacular success. Today the least exciting aspect of reality is determined by such developments as the strong euro, which hurts exports and tourism, and high fuel prices, which increase the costs of industry, among other things. The problem is that we must learn to live through this, as it tends to be a long-lasting trend. In that sense, the need for boosting competitiveness is becoming particularly important, more so than the usual recommendations, as the strengthening of the currency is forcing export companies to sell at lower prices, while the costs they have to cover are rising. The situation becomes worse as these trends coincide with the fiscal crisis in the local economy. The state must cover its deficits and its expenses, meaning it cannot limit the costs it adds to the economy’s operation. Social security contributions cannot be cut, the tax burden must be reduced on a three-year timetable and growth may exceed the eurozone average but still cannot be deemed satisfactory. All this is happening in a country where most people eye the public sector, either to find a job, get a grant, secure a state commission or even to receive a pension. Fiscal rehabilitation is clearly much easier when there is significant growth in the economy. The same applies to companies, whose rehabilitation is more feasible during periods of rising revenues, i.e. just when we do not realize we need it.